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TheStreet Open House

iTunes Radio Expansion Puts Software Revenue at Forefront

NEW YORK ( TheStreet) -- If Apple (AAPL) is serious about rapidly expanding its revenue stream from software and services, expanding iTunes Radio is a good place to start.

According to a report in Bloomberg, Apple is looking to expand iTunes Radio, which it unveiled as part of iOS 7 in June to English-speaking countries outside the U.S. by early next year. The report mentions iTunes Radio, which had 11 million unique listeners when Apple announced opening weekend sales for the new iPhone 5s/5c, will be coming to the U.K., Canada, New Zealand and Australia by early next year.

Apple, which is slated to report fiscal fourth-quarter results Oct. 28, has seen its revenue from software and services grow at a healthy rate. In Apple's fiscal third-quarter report, revenue from iTunes software and services grew at a 25% year-over-year clip to $3.99 billion.

The iTunes platform has become a valuable service for Apple. It now holds more than 500 million credit cards and valuable personal information -- consumer habits, preferences -- through the software.

The iTunes Radio streaming service generates revenue from advertisements. So far, the service has signed up such blue-chip advertisers as McDonald's (MCD) and Procter & Gamble (PG). The upcoming quarter will be the first time iTunes Radio affects Apple revenue, despite having been announced in June. Apple's new mobile operating system, iOS 7, became available for public download as of Sept. 18.

Internet radio industry leader Pandora Media (P) does not operate in the U.K. or Canada, though it does offer its services in Australia. As of the end of September, Pandora noted it had 72.7 million active listeners, an increase of 25% year over year. Many industry watchers are speculating about whether it will be able to continue to grow marketshare in a more competitive environment where Apple's iTunes Radio is the most potent threat.

There have been over 700 million iOS devices (iPhone, iPad, iPod) sold, according to CEO Tim Cook at Apple's recent iPhone announcement, suggesting that the potential for iTunes Radio is vastly greater than what is being seen now.

Last week, Eddy Cue, the Apple senior vice president in charge of iTunes, told the Associated Press he wants to bring the streaming music service, which also allows you to purchase music from iTunes to more than 100 countries. In addition to moving on to other English-speaking countries, Bloomberg noted Nordic countries are also being targeted.

Shares of Apple were higher in pre-market trading, gaining 0.33% to $489.38.

-- Written by Chris Ciaccia in New York

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